3/8/13: Pandora Chairman/CEO Kennedy to step down

Paul Maloney
March 8, 2013 - 6:10pm

Longtime Pandora chairman, CEO, and president Joseph Kennedy will step down, the leading webcaster announced late yesterday.

Kennedy will stay on in his current capacities until his successor is named. Pandora's Board of Directors has formed a search committee and is hiring a search firm to identify likely replacements.

Kennedy, who has led Pandora since July 2004, said, "I am incredibly proud of the team and what we have accomplished in redefining radio."

Under Kennedy's leadership, Pandora became far-and-away the leader in Internet radio, with over 67 million monthly active listeners, and the largest radio presence in nearly every major U.S. market, with over 8% of total U.S. radio listening. Pandora now has a sales presence in over 28 major markets.

In fiscal 2013, the company earned $427.1 million in total revenue, and $255.9 million in mobile revenue.

RAIN Analysis: I believe that Joe has done a terrific job for Pandora over the past decade, building it to point where Pandora is the leading brand of radio in virtually every U.S. market -- including what I believe calculates out as a commanding lead in the P18-34 demo in each market.

On the other hand, the medium of Internet radio continues to be challenged by a difficult regulatory environment, due to a poorly-worded royalty rate-setting standard in 1998's DMCA, leading to Copyright Royalty Board judges continuing to set royalty rates, with every one of their decisions, that would bankrupt most of the industry (and require emergency Congressional action each time to fix. Fortunately, as you know, there's a movement underway in Congress -- with bills that were introduced last year in both the House and Senate -- that will hopefully fix that rate-setting standard).

Because Joe has had to compete with other forms of digital radio -- satellite and cable -- that pay only 8-15% of their revenues in royalties (while he's had to pay over 50%), he's been constrained in what he could spend on building his sales force and doing traditional advertising for his product. Given those constraints, I believe his performance has been extremely impressive.

By the time Joe retires from the company, Pandora will probably have close to a 10% share of radio listening in every U.S. market, and has almost single-handedly made "personalizable radio" the clear future of music radio in the U.S. and probably the world, with benefits for consumers, musicians, and advertisers. That's a pretty good accomplishment! -- KH

To illustrate Kurt's point regarding Pandora's royalties in relation to its revenue, take a look at the following chart. It's from Statista (here), and is based on Pandora's recently-announced fiscal 2013 earnings (h/t to Hypebot). It clearly shows that Pandora's content acquisition costs (royalties) are growing faster than its otherwise impressive revenue increases.

Paul Maloney
March 8, 2013 - 6:10pm

Recent reports indicate that Apple's plans for launching a customizable Internet radio service have been slowed by difficult negotiations with rights holders -- both labels and publishers. 

At one time Apple had reportedly hoped to make its Internet radio service part of the iPhone 5 launch. When dragging talks with labels and publishers made that impossible, the company planned to launch around Grammy Awards last month. Now The New York Times says Apple won't likely come to market until summer or later.

The company wants to preload an app on iPhones and iPads to deliver customized music streams, free-to-use and supported by its iAds platform.

The New York Post reports that Apple reportedly offered to pay record labels "about 6 cents per 100 songs" -- roughly just half what Pandora pays. ("Songs" here means "performances," that is, a single song streamed to a single listener.) Record labels, which are in most cases the owners of copyright sound recordings, want Apple to pay "at least" the statutory streaming rate of about 21 cents per 100 performances. (Broadcasters pay slightly more than the "pureplay" statutory rate to stream sound recordings.) Some analysts say Apple is learning that it no longer has the negotiating weight it once did when Steve Jobs and the company first launched the iTunes download store.

Apple also needs to negotiate with publishing/composition rights holders. In this area, talks are reportedly snagged by Sony/ATV, which recently withdrew digital rights from ASCAP and BMI (which led to a big increase in what Pandora pays). See more in RAIN here and here.

Read coverage from The New York Times here and the New York Post here.

Paul Maloney
March 8, 2013 - 6:10pm

While broadcasters' streaming listening largely rebounded to pre-holiday levels in January, Triton Digital's latest Webcast Metrics data raises an alarm for AM/FM radio: just 20% of its online listening is happening on mobile devices.

The January online radio rankings report was released yesterday, and Triton Digital prefaced the rankings by revealing that those who listen to broadcast radio streams listen on desktop computers 80% of the time. While mobile streaming of terrestrial radio programming was indeed up 18% in January, that should give broadcasters pause.

It's generally perceived that the bulk of Internet radio's growth is on mobile devices. Already, pureplay Net radio listeners use mobile devices 70% of the time, and the mobile compenent of Pandora's listening is well over 75% by now. If mobile streaming is where radio listening is headed, broadcasters need to get in the game. 

[Then again, if you want to listen to a local station, in most cases, it's just as easy to flip on the radio... especially if you're in the car.]

Looking at the rankings, January brought significant returns for many AM/FM streams after listening fell off during the holidays (Trition Digital reminds the reader while both December and January were 31 days long, January had two additional weekdays, but December had an extra weekend).

ESPN Radio came roaring back 44% in January, for what looks to be its best month of online listening ever (one might credit the end of NFL season and the Superbowl for that). Cox was also up to pre-holiday form (up 31% over December), Cumulus was up 20%, and even CBS was up 18%. NPR Member stations were up 36%, but as always, that may reflect bringing new streams into the group.

While up just slightly since December, Pandora's year-over-year listening is up an impressive 53%.

See Triton Digital's January 2013 Online Audio Top 20 Ranker here.